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With 30 people around the table, and more participating by phone, it was sometimes difficult to follow the proceedings of the Financial Crisis Advisory Group (FCAG) in London today. The body, assembled by the International Accounting Standards Board and the Financial Accounting Standards Board last year to provide high-level advice on financial reporting issues stemming from the credit crunch, also found itself wrestling with a host of complicated problems.

The most pressing is the rising political pressure being exerted on standard setters, such as that which led to the hasty release of amendments to fair-value standards by FASB earlier this month. Encouraged by FASB’s changes, European finance ministers recently urged the IASB to follow suit and further relax its rules for mark-to-market accounting. Following a two-week comment period on FASB’s actions that ends today, the IASB will decide its next steps during a three-day board meeting that begins on Wednesday.

FASB chairman Robert Herz opened today’s meeting of the FCAG by putting into context the “virtual cornucopia” of actions that the standard setter has taken recently. Herz remarked, for instance, that at a Congressional hearing, he was “fairly strongly urged” to act. However, he added that a “steady diet” of the sort of expedited changes that FASB enacted this month would be unwelcome, “but these are extraordinary times.”

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Most parties agree that convergence with international accounting standards is an important goal, but the will to “flick the switch” on committing to a hard date on adoption is difficult, Herz said. Until then, politicians will focus on the “exigencies of the day,” which may, or more likely, may not advance the convergence project. Herz asked the group for any recommendations on how he could better manage the task of merging international financial reporting standards with U.S. generally accepted accounting principles.

Everyone in the room had a “degree of sympathy” for Herz, noted Hans Hoogervorst, chairman of the Dutch markets regulatory and co-chair of the FCAG. It sounded like the American standard setter was being asked to “ride two horses,” the Dutchman added. “I’ve got chapped legs,” Hertz retorted.

Harvey Goldschmid, a former commissioner of the U.S. Securities and Exchange Commission and Hoogervorst’s fellow co-chair of the FCAG, acknowledged Herz’s “exquisite diplomacy” referring to the abuse he took before Congress, adding that the need to “shield” standard setters from political pressure was an “imperative of our time.” In a perfect world, with full resources and free from outside influence, “when could we get convergence?,” he asked Herz.

“Ten to fifteen years,” the FASB chairman replied.

This seemed to surprise many in the room. After all, the so-called Norwalk Agreement, a memorandum of understanding between the FASB and IASB, calls for the completion of all “major joint projects” by 2011. David Tweedie, chairman of the IASB, noted that it took 12 years to develop IAS 39, the standard covering financial instruments, so the developing a single, simpler set of standards could not be rushed.

Indeed, Tweedie added that the recent recommendation by G20 leaders, the most influential in the world, to “make significant progress” in this area by the end of 2009 will be a major challenge. Nonetheless, should major convergence milestones — like the 2011 deadline enshrined in the memorandum of understanding — come and go without a stronger commitment from the U.S. on IFRS adoption, “there will be pressure to cut the U.S. loose” from the process. When it comes to convergence, the U.S. must “get on or off the train,” Goldschmid urged.

The Long and Short of It“Rightly or wrongly,” noted Michel Prada, former chairman of the French markets regulator, there is a sense among those outside of the standard-setting process that it is “not speedy or accountable enough.” Nelson Carvalho, former chairman of the IASB’s Standards Advisory Council, expressed exasperation with this situation. The idea of demanding short-term amendments to standards — particularly in thorny areas like the valuation of financial instruments — is akin to politicians demanding that pharmaceutical firms find a cure for cancer tomorrow, he said. John Bogle, founder of mutual fund giant Vanguard, went even further, asserting that he found it “disturbing and disgusting” that the U.S. Congress has waded into the standard-setting process at all.

Jim Leisenring, an IASB board member, noted that it wasn’t the speed with which accounting boards could enact changes that was at issue, but the quality of said amendments. The IASB, for example, could choose tomorrow to adopt the expanded disclosures required by the FASB’s recent amendments to fair-value measurements, he said. Of course, in that case “all holy hell would break loose,” he added.

Hoogervorst provided further perspective. His experience as Dutch health minister taught him that there is “nothing more dangerous than completely independent professionals,” adding that doctors, unchecked by any oversight, were likely to develop an inefficient, costly system. Accountants would do the same if left to operate in a “vacuum” without political checks and balances.

But the politicians need to be warned of the repercussions of “renationalising” accounting standards, said Tommaso Padoa-Schioppa, a former Italian finance minister. The purpose of the FCAG, to produce recommendations for the FASB and IASB by June, risks being overtaken by more urgent events. Thus, he pushed the group to issue an interim statement that “puts to rest the political pressure” that endangers the convergence project.

“We must go public,” agreed Klaus-Peter Müller, chairman of the supervisory board of Commerzbank. He called for a statement to “ask for understanding about how much work it takes” to alter accounting standards, harking back to the speed-versus-quality debate brought up by Leisenring.

Stephen Haddrill, director general of the Association of British Insurers, noted that for proponents of convergence, the “long-term vision has not been powerfully enough articulated.” When it comes to convergence, the group should make a statement that paints an “exciting picture” of “what it looks like when we get there,” he said. Hoogervorst suggested that the group issue an “open letter to the G20″ that “exudes urgency” while keeping a “realistic perspective” on what can be done according to politicians’ preferred timetable.

Lost Short-term Horizon

Reconciling the G20’s request for progress in six months versus Herz’s earlier claim of 10-to-15 years for convergence stirred much debate in the room. Gene Ludwig, former U.S. Comptroller of the Currency, floated the idea of a “gap analysis” on the issues facing standard setters, identifying which could be more easily addressed on an expedited basis. Jerry Corrigan, a former president of the New York Federal Reserve now at Goldman Sachs, noted that aiming for “substantial,” but not “100%,” convergence would still gain standard setters “a hell of a lot of credibility.”

As a “longstanding member of the school of underpromise and overperform,” Corrigan suggested aiming for 80% convergence, but warned the group about being too specific in any public statement. Carvalho agreed that the FCAG should be “as precise as possible” about what it considers “substantial” convergence.

Judging by the furious scribbling of observers and FCAG members’ staff, a carefully-worded communiqué from the group — acknowledging the urgency of addressing the valuation of financial instruments, accounting convergence and the like, while at the same time telling politicians to back off — should be expected soon. During a break in the meeting, Prada told CFO.com that he believed an important function of the group was to “cool down” the debate over accounting’s role in the financial crisis.

Taking advantage of the group’s heavyweight membership to provide a long-term vision for the convergence process could achieve this. In the meantime, Prada likened the situation facing Herz, Tweedie and other accounting standard setters to navigating a ship in stormy seas, wobbling as if on a listing deck as he turned away to rejoin the meeting.